Comparing tax-deferred accounts like 401(k)s and IRAs to taxable accounts. If you contribute $6,000 yearly for 25 years at 12% returns, you save over $300,000 in taxes by deferring versus paying taxes on gains along the way.
$6,000
25 years
12%
30%
20%
Most people have put money into tax deferred accounts. 401ks, 403bs risk savings plans. These are all employer plans. Or maybe someone just has a traditional IRA or SEP IRA or simple ira. The monies are going in, they're getting deductions for that. It grows tax deferred again when they take the money out they pay taxes. Now tax deferred growth is still pretty powerful if we actually put some numbers behind this. If we put $6,000 away into an account for 25 years and we apply a 12% compounding return, taxes 30% during our working years at 25 years and taxes at 20% when we take the money out. If we compare a traditional IRA to just taxable meaning every year you got to pay taxes compared to tax deferred you'd have over $300,000 in tax savings. You punch that into your financial calculator, you got $300,000 in tax savings. So economically, financially you can argue that a traditional IRA can be powerful in contrast to just saving taxable.
Physicians and High Earners — What Real Estate Can and Can't Do for Your Taxes
